"We should support homeowners who want to improve their properties and standard of living. These reforms should also play a role in increasing the housing supply."

The MP said it was unfair for households to be charged twice by paying council tax on their homes and annexes - which are regarded as separate dwellings.

It is estimated that as many as 300,000 households in England could benefit from the change.

The reforms are expected to form part of a package of policies to increase housing supply and address the shortage of affordable homes over the next two years.
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Shadow communities secretary Hilary Benn said occupied 'granny flats' had been exempt from council tax since 1997.

"This cynical spinning shows that once again the Tory-led Government are over-claiming and under-delivering for our nation's pensioners.

"This seems to be nothing more than an attempt to deflect attention from their housing crisis."

Under the 1997 regulations, council tax is not paid on annexes occupied by relatives who are over 65, "mentally impaired", or "substantially and permanently disabled".

A spokesman for Mr Pickles said the proposal was to extend the exemption to allow annexes inhabited by any family member, not just pensioners, to be free from council tax.

No decision had been taken on whether town halls would be compensated by central government for the lost revenue, he said.

Housing minister Grant Shapps said: "We should support homeowners who want to improve their properties and standard of living. At every opportunity Labour want to find a way of raiding the pockets of the public."